After divorce, examine all aspects of estate planning

Q: I have a couple of questions I hope you can help me with. My situation is, I am divorced with two adult children. I am still working and plan to work at least another 10 years. My first question deals with my will. I did my will a few years before I was divorced and haven’t made any changes. The will basically leaves everything to the spouse and, if she’s not around, then to my two children. My question is, do I need to change the will now that I’m divorced or is she automatically excluded because of the divorce? My second question deals with the property settlement. I have to make a lump sum payment to her in another two months. I can either sell one of my investments or I can refinance my house at 4.5 percent. What option would you do?

A: First, with regard to your estate plan, I do recommend that you redo it. It is good business that, when you get divorced, you revise your estate plan to reflect your current thoughts. When you leave your estate plan as is, it leaves things up to interpretation and potential fights. After all, the probate court can hold that since you did not make a change after your divorce, it was your intent to continue to have your ex as the beneficiary. To make things clear and to remove the risk of fights and costly legal battles, I strongly recommend that you redo your estate plan.

Don’t forget: When you do your estate plan, not only should you redo your will, but also your medical and durable powers of attorney. What many people also forget is to change their beneficiaries. You may have beneficiaries on insurance policies, IRAs or even on your brokerage account. It is important that you review all your beneficiary designations and make changes where necessary.

With regard to where you should get the money for the lump-sum payment, I think it comes down to whether you believe your investments will earn more than the after-tax cost of the mortgage. For example, if the after-tax cost of the mortgage is 3.5 percent, do you think your investments will earn more than 3.5 percent after taxes? If you’re a long-term stock market investor, over the long run your investments should earn more than the cost of the mortgage. If you’re investing in things like CDs and U.S. treasuries, it is unlikely that they will earn more than the mortgage is costing you. If you have those types of investments, I would lean toward liquidating those investments as opposed to refinancing your home. If you have a stock portfolio and are looking long term, I would go the mortgage route. The key is to focus on what you are investing in and the returns.

I always recommend to individuals that, whenever they have a change in their family situation — birth, death or divorce — they review their estate plan. Whether you need changes depends upon your individual situation. In the great majority of situations, when it comes to a divorce, it is a clear sign that your estate plan needs to be redone.